The easiest way to refinance for renovations

Refinancing to Release Equity: How It Works

Refinancing to access equity means increasing your loan amount based on your property's current value, then taking the difference as cash for your renovation.

Consider a homeowner in Balaclava who purchased an Edwardian terrace five years ago with a mortgage of $520,000. The property has since increased in value, and the loan balance has dropped to $480,000. If the property is now valued at $850,000, the homeowner has $370,000 in equity. Most lenders will allow you to borrow up to 80% of the property value, which in this case would be $680,000. That creates a potential borrowing capacity of $200,000 above the current loan balance, minus the portion already committed as equity. After accounting for lender requirements to retain 20% equity, this homeowner could access around $100,000 to $120,000 for renovations while remaining within standard lending limits.

The refinance process involves a property valuation, an application to increase the loan amount, and settlement of the new loan. The funds are typically released at settlement and can be directed to your nominated account or held in an offset account until needed.

Why Balaclava Properties Are Well-Positioned for Equity Release

Balaclava's proximity to the beach, St Kilda Road employment corridor, and Carlisle Street retail precinct has driven consistent property value growth over the past decade.

Many homes in the area are older character properties that benefit significantly from modern updates. Renovating a period home in Balaclava often delivers a higher return than in newer suburbs because buyers in this location actively seek homes with original features that have been carefully updated. In our experience, homeowners who renovate rather than move often find they can achieve the layout and finish they want while staying in a suburb they value, particularly when schools and community connections are already established.

The combination of strong property values and renovation-friendly housing stock makes equity release a practical option for many Balaclava residents.

How Much Equity Can You Access?

Most lenders will allow you to borrow up to 80% of your property's current value, though some will go higher with lender's mortgage insurance.

Your available equity is calculated by taking 80% of the property valuation, subtracting your current loan balance, and deducting any costs associated with the refinance. If your property is valued at $900,000, 80% is $720,000. If your current loan balance is $500,000, the maximum you could typically borrow is $720,000, giving you access to $220,000 before costs. That amount would need to cover both the renovation and associated fees such as valuation, application, and discharge costs from your existing lender.

If you need to borrow more than 80% of the property value, lender's mortgage insurance will apply. This can add several thousand dollars to your upfront costs and is generally only worthwhile if the renovation will deliver a clear increase in property value or if your income is strong enough to service the higher loan comfortably.

Fixed or Variable: Choosing the Right Rate for Your Refinance

When refinancing to access equity, you'll need to decide whether to fix, stay variable, or split your loan between the two.

A variable interest rate gives you flexibility to make extra repayments and access funds through a redraw or offset account, which is useful if you're drawing down renovation funds progressively. A fixed interest rate provides certainty around repayments, which can help with budgeting if your income is less predictable or if you're concerned about potential rate rises during the renovation period.

Many homeowners choose a split loan, fixing a portion of the loan to lock in repayment certainty while keeping the remainder variable for flexibility. In a scenario where you're accessing $100,000 for a renovation, you might fix the original loan balance and keep the additional $100,000 on a variable rate. This allows you to pay down the renovation debt faster without incurring break costs if you receive a tax return, bonus, or sale of another asset.

If you're coming off a fixed rate period, refinancing at the same time you access equity can be an efficient way to review your entire loan structure rather than simply rolling onto your lender's standard variable rate.

What Lenders Look for When Refinancing for Renovations

Lenders assess your ability to service the higher loan amount, the value of your property, and your overall financial position.

Your income, employment stability, existing debts, and credit history all influence the outcome of a refinance application. Lenders will also consider how much equity you're retaining after the refinance. If you're borrowing close to 80% of the property value, they'll scrutinise your income more closely than if you're only borrowing 60%. The property valuation is central to the application, and it's worth noting that valuations can vary between lenders. If one lender's valuation comes in lower than expected, another lender may take a different view depending on their panel of valuers and recent sales data.

In our experience, homeowners who complete a loan health check before applying often identify ways to strengthen their application, such as paying down smaller debts, closing unused credit cards, or adjusting the timing of the application to align with income changes.

Using an Offset Account to Manage Renovation Drawdowns

If you're not using the full renovation amount immediately, an offset account can reduce the interest you pay while the funds sit unused.

When you refinance and access equity, the full loan amount is drawn at settlement. If your renovation is staged over several months, you may have tens of thousands sitting in your account while you wait for quotes, permits, or trades. Placing that money in a refinance offset account linked to your loan means the balance offsets your loan, and you only pay interest on the net amount. If you've borrowed an additional $100,000 but only spent $40,000, keeping the remaining $60,000 in offset means you're only paying interest on the amount you've actually used.

Not all loan products include offset accounts, and some charge higher interest rates for the feature. When comparing refinance options, calculate whether the interest saved through offset justifies any rate difference or account fees.

When Refinancing for Renovations Doesn't Make Sense

Refinancing to access equity isn't suitable if your property value hasn't increased, your income has dropped, or the renovation won't add meaningful value.

If your property is worth less than or similar to what you paid, you may not have enough equity to borrow against without exceeding 80% and triggering mortgage insurance. If your income has reduced due to parental leave, a career change, or reduced hours, lenders may not approve a higher loan amount even if the equity exists. Similarly, if the renovation is purely cosmetic or highly personalised, it may not add enough value to justify increasing your debt.

In some cases, using savings, a personal loan, or scaling back the renovation scope may be more appropriate than refinancing. A mortgage broker can model different scenarios and help you weigh the cost of borrowing against the benefit of completing the work now versus later.

Costs to Factor Into Your Refinance

Refinancing to access equity involves several upfront costs that should be factored into your budget before proceeding.

You'll typically pay for a property valuation, a discharge fee to exit your current loan, application fees for the new loan, and settlement costs. These can total anywhere from $1,500 to $4,000 depending on your lender and property location. Some lenders will allow you to capitalise these costs into the new loan, while others require them to be paid upfront. If you're moving from a fixed rate loan before the expiry date, break costs may also apply, and these can be substantial depending on how much time remains and how far rates have moved since you fixed.

Before committing to a refinance, ask your broker to provide a clear breakdown of all costs so you can assess whether the equity you're accessing justifies the expense.

Call one of our team or book an appointment at a time that works for you. We'll review your property equity, compare refinance rates across multiple lenders, and structure a loan that aligns with your renovation timeline and financial goals.

Frequently Asked Questions